Making a Molehill out of a Mountain: A (Very) Modest Net Neutrality Idea Tim Brennan Professor, Public Policy and Economics, UMBC Senior Fellow, Resources for the Future Phoenix Center Annual U.S. Telecoms Symposium Washington, DC November 28, 2007

Phoenix Center Telecoms Symposium, 11/28/07Brennan: Net Neutrality2 Perhaps you’ve heard of it … Hard to stay motivated Choosing: Whose arguments are least bad? Pros? –Protect Ma and Pa Website (big guys get better deal) –Prevent market power (big guys get worse deal?) Cons? –Hide the ball? “Can’t define the issue” –“How many economists does it take to screw in a light bulb?” –Static numbers (DOJ filing) prove nothing

Phoenix Center Telecoms Symposium, 11/28/07Brennan: Net Neutrality3 Add a wrinkle (both “idea” and “age”) Remember the wireline universal service subscriber network externality –More users, the better –Rationalize wide coverage With the broadband web, could there be a content-side network externality? Value of a website enhanced by reasonable expectation that links to others will work Absent a broadband monopoly (which awaits fiber optics), externality not internalized

Phoenix Center Telecoms Symposium, 11/28/07Brennan: Net Neutrality4 What might this imply? NOT requiring equal treatment of all websites BUT, a minimum quality of service to all –Could this be Google’s point? Implied but unstated in old universal service mandates –Couldn’t satisfy with strings and tin cans But with old mandates, those who wanted better service could get it –Appropriate minimum changes with expectations, technology

Phoenix Center Telecoms Symposium, 11/28/07Brennan: Net Neutrality5 Implications for the debate Concessions up front –Not sure if, how this would work technically –No idea regarding the appropriate minimum No guarantee that benefits exceed costs But not draconian interference –No price regulation –Like consumer protection: Requiring that all cars have air bags, but free to put in more –Requirement could be non-binding Retains efficiency, e.g., market for priorities –Innovation incentives still there

Phoenix Center Telecoms Symposium, 11/28/07Brennan: Net Neutrality6 A further (non-economic) side benefit No content-based blocking Troubling, if not entirely efficiency-related Long disbelief that owners of facilities should have First Amendment rights to exclude –Although giving them content control may be efficient! What tilted me: DOJ - Telus blocking access to union website “irrelevant” because Canadian –Experience highly relevant –Wait to see if DOJ similarly disparages Canadian local voice deregulation